Work Opportunity Tax Credit (WOTC) - What is it?
The Work Opportunity Tax Credit (WOTC) is a federal tax incentive program designed to encourage businesses to hire individuals from specific groups facing employment challenges.
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What is WOTC?
WOTC is a federal tax incentive, codified as section 113 of Division EE of Pub. L. 116-260 – Consolidated Appropriations Act of 2021, that encourages employers to hire individuals from groups facing significant barriers to employment, such as veterans, ex-felons, and recipients of public assistance.
This guide breaks down WOTC, including its purpose, eligibility criteria, benefits, application process, common mistakes to avoid, and tips for staying updated.
Disclaimer: This article is for informational purposes only and does not constitute legal or tax advice. Please consult with the IRS or a professional advisor to understand how the Work Opportunity Tax Credit (WOTC) can specifically benefit your business.
Eligibility for WOTC
The eligibility spectrum under WOTC encompasses a diverse array of individuals facing distinct employment challenges:
- Veterans: This includes veterans receiving SNAP benefits, those with service-related disabilities, and unemployed veterans, with special emphasis on those who have endured prolonged joblessness.
- Temporary Assistance for Needy Families (TANF) Recipients: Individuals receiving TANF benefits for an extended period before employment qualify under this category.
- SNAP (Food Stamp) Recipients: Adults aged 18-39 hailing from households receiving SNAP benefits or individuals who have been SNAP beneficiaries for a significant duration are eligible.
- Designated Community Residents (DCR): Residents aged 18-39 residing in specified zones aimed at fostering economic growth qualify under this group.
- Vocational Rehabilitation Referred Individuals: Individuals with disabilities referred through state-approved rehabilitation programs or those under the Ticket to Work program are eligible.
- Ex-felons: Individuals hired within a year of conviction or release from incarceration due to a felony are covered.
- Supplemental Security Income (SSI) Recipients: Individuals receiving SSI benefits within a specific timeframe prior to employment fall under this category.
- Long-Term Unemployment Recipients: Tax credits for those unemployed for a substantial period and receiving unemployment benefits are eligible.
- Summer Youth Employees: Young individuals residing in specified areas and employed during designated periods qualify.
Benefits of WOTC for Businesses
- Tax Savings: Businesses can claim a tax credit of up to 40% of the first $6,000 in wages paid to eligible employees.
- Reduced Recruitment Costs: Hiring from WOTC target groups can reduce recruitment and training costs.
- Enhanced Company Image: It showcases corporate social responsibility and supports workforce diversity.
- Access to Motivated Workers: WOTC eligible individuals are often motivated and dedicated to their roles.
How to Apply for WOTC
It depends on the state the business is in, but typically, employers need to submit IRS Form 8850 to their state workforce agency within 28 days of the employee's start date to confirm eligibility.
For example, the Texas Workforce Commission states that within 28 days of the employee's start date, employers hiring individuals from one or more of the identified target groups must submit IRS Form 8850 and ETA Form 9061. Applications may be submitted by mail, email, or through Texas's online portal.
Common Mistakes to Avoid
- Missing Filing Deadlines
- Inaccurate or Incomplete Forms
- Misunderstanding Employee Eligibility
- Not Keeping Adequate Records
- Overlooking Rehires or Temporary Workers
- Lack of Coordination Between Departments
Staying Informed
To maximize benefits and ensure compliance, businesses should regularly check official IRS and Department of Labor resources, subscribe to newsletters, attend workshops, engage with professional associations, consult tax professionals, and monitor legislative actions.
- Financial Benefits: WOTC offers substantial tax credits for hiring eligible individuals.
- Workforce Diversity: Hiring from WOTC groups enhances diversity and social responsibility.
- Compliance and Timing: Adherence to deadlines and procedures is crucial for receiving credits.
- Stay Informed: Continuous learning and adaptation are necessary to optimize WOTC benefits.
Understanding and effectively managing WOTC not only brings financial advantages but also supports inclusive hiring practices and community development.
About the author
Casey Pontrelli
Casey Pontrelli is a multi-talented professional with a background in content creation, branding, and social media marketing. Whether writing for a newspaper, eCommerce website, B2B startup, or a marketing agency, she has taken her strong background in journalism and turned her focus to SEO and content marketing. She’s written about everything from boutiques to cars to small businesses, and enjoys most when she knows her writing has had an impact. When she’s not writing up a storm or creating attention-grabbing social media posts, Casey enjoys hanging out with her two cats, Eddy and Larry, going on long walks in the Green Belt, and, predictably, reading.
